Commercial real estate on the rise in Las Vegas, but not without headwinds
Southern Nevada’s commercial real estate industry entered 2022 on an upswing and continues to flourish, despite some headwinds.
The commercial real estate market is being bolstered by our area’s substantial economic growth, robust demand and a development industry that is ablaze with activity.
The following sectors are best positioned to overcome expected challenges in 2022.
■ The industrial sector remains strong and resilient. In fact, one of its biggest challenges has been a growing demand for space that is outpacing our local supply. Smaller facilities remain in demand, while e-commerce companies are looking to lease or build larger warehouses ranging from 500,000 square feet to 800,000 square feet.
The North Las Vegas submarket continues to thrive, with most projects designed to meet the needs of e-commerce companies, such as Amazon and Fanatics. Other submarkets like Henderson and the area around the airport have attracted very large users like FedEx and Kroger.
On the docket for 2022, plans include another 18 million square feet of planned industrial space to be built, though most of those projects won’t be finished until 2023 and are already spoken for. Southern Nevada absorbed more than 10 million square feet of industrial space in 2021. According to developers, competition is at unprecedented levels and everyone wants a piece of the industrial market, creating a huge shortage of materials and escalating land prices.
■ The office sector continues its ongoing recovery from COVID-19 and associated lockdowns. During 2021, vacancy decreased to 13.3 percent, which was lower than its pre-lockdown rate of 13.6 percent, but also the market’s lowest vacancy rate since before the Great Recession. Asking rental rates increased to $2.27 on a full-service basis. Office inventory increased by 93,365 square feet in the fourth quarter of 2021, bringing year-to-date deliveries to 178,035 square feet.
Southern Nevada had 674,214 square feet of office space under construction at year’s end, the most space under construction since 2014. Southern Nevada had three quarters of strong net absorption in 2021, with occupancy increasing by 931,390 square feet this year.
Moving forward, the state of our tourism industry will be a key driver in Southern Nevada’s recovery. This year, the local economy is expected to continue progressing along its road to recovery — even with new COVID-19 variants overshadowing the headlines we have enjoyed recently when it comes to population growth, rising gaming revenues and a steady return of tourists enjoying the bright lights of Las Vegas. After record-breaking gaming revenue numbers through the end of 2021, industry experts are predicting Las Vegas could see a full recovery by 2023.
Still, the state’s recovery has been skewed and uneven. For instance, Northern Nevada’s employment numbers have now exceeded pre-pandemic levels, while Southern Nevada can’t yet say the same. And, while gaming revenues are up, local hotel room occupancy levels are not back to pre-pandemic peaks. Of course, the Las Vegas area was one of the hardest hit in the U.S. because of its heavy reliance on travel and tourism.
Large conventions have begun returning to Las Vegas, but with the omicron surge, some of the larger companies that attend such conventions have switched to online participation.
Additionally, international travelers, who account for up to 20 percent of all Las Vegas visitors in recent years, have been slow to return.
By most accounts, the commercial real estate sector is expected to continue on an upward trajectory this year, but look for vulnerabilities in rapidly rising material costs, inflation, land constraints, omicron and concerns of water supply amidst a regional drought, despite our ongoing conservation efforts.
Good times in 2022, but what will happen in 2023?
Hayim Mizrachi is president of the 2022 NAIOP board of directors and president of the MDL Group.